Canon 2009 Annual Report Download - page 83

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Weighted-average assumptions used to determine net periodic benefi t cost are as follows:
Years ended December 31 Japanese plans Foreign plans
2009 2008 2007 2009 2008 2007
Discount rate 2.4% 2.5% 2.5% 5.3% 5.1% 4.5%
Assumed rate of increase
in future compensation levels 3.0% 2.9% 2.9% 3.1% 3.1% 2.9%
Expected long-term rate of return on plan assets 3.7% 3.7% 3.9% 6.2% 6.5% 6.0%
Canon determines the expected long-term rate of return
based on the expected long-term return of the various asset
categories in which it invests. Canon considers the current
expectations for future returns and the actual historical returns
of each plan asset category.
Plan assets
Canon’s investment policies are designed to ensure adequate
plan assets are available to provide future payments of pension
benefi ts to eligible participants. Taking into account the expect-
ed long-term rate of return on plan assets, Canon formulates a
“model” portfolio comprised of the optimal combination of
equity securities and debt securities. Plan assets are invested in
individual equity and debt securities using the guidelines of the
“model” portfolio in order to produce a total return that will
match the expected return on a mid-term to long-term basis.
Canon evaluates the gap between expected return and actual
return of invested plan assets on an annual basis to determine if
such differences necessitate a revision in the formulation of the
“model” portfolio. Canon revises the “model” portfolio when
and to the extent considered necessary to achieve the expected
long-term rate of return on plan assets.
Canon’s model portfolio for Japanese plans consists of three
major components: approximately 30% is invested in equity
securities, approximately 50% is invested in debt securities, and
approximately 20% is invested in other investment vehicles,
primarily consisting of investments in life insurance company
general accounts.
Outside Japan, investment policies vary by country, but the
long-term investment objectives and strategies remain consis-
tent. However, Canon’s model portfolio for foreign plans has
been developed as follows: approximately 70% is invested in
equity securities, approximately 25% is invested in debt securi-
ties, and approximately 5% is invested in other investment vehi-
cles, primarily consisting of investments in real estate assets.
The equity securities are selected primarily from stocks that
are listed on the securities exchanges. Prior to investing, Canon
has investigated the business condition of the investee compa-
nies, and appropriately diversifi ed investments by type of indus-
try and other relevant factors. The debt securities are selected
primarily from government bonds, public debt instruments, and
corporate bonds. Prior to investing, Canon has investigated the
quality of the issue, including rating, interest rate, and repay-
ment dates, and has appropriately diversifi ed the investments.
Pooled funds are selected using strategies consistent with the
equity and debt securities described above. As for investments in
life insurance company general accounts, the contracts with the
insurance companies include a guaranteed interest rate and
return of capital. With respect to investments in foreign invest-
ment vehicles, Canon has investigated the stability of the under-
lying governments and economies, the market characteristics
such as settlement systems and the taxation systems. For each
such investment, Canon has selected the appropriate investment
country and currency.
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